TMI Blog2010 (11) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... r the principle of consistency although the same is not allowable as per law - Appeal is allowed for statistical purpose Regarding rectification order - held that: this rectification was made by the AO on the basis of disallowance of depreciation in asst. yr. 2002-03. That issue has been restored back by us to the file of the AO in asst. yr. 2002-03 also. Similar issue in this assessment year i.e., asst. yr. 2004-05 is also restored back to the file of the AO for fresh decision and hence, on this aspect also, no adjudication is called for at this stage and this issue is also restored back to the AO for fresh decision in the light of final finding on the issue of depreciation in asst. yr. 2002-03 and in the present year - appeal of the assessee is allowed for statistical purposes - ITA Nos. 3740 to 3742/Del/2008 and 1020/Del/2009; ITA No. 961/Del/2008; - - - Dated:- 25-11-2010 - C.L. Sethi, A.K. Garodia, JJ. S.R. Wadhwa for the Assessee Banita Devi Naorem for the Revenue ORDER By the Bench:- 1. Out of this bunch of five appeals, there are three appeals of the assessee for asst. yrs. 2002-03, 2003-04 and 2004-05 arising out of assessment order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was assigned to the goodwill account although the claim of the assessee is that it is on account of intangible assets eligible for depreciation under s. 32(1)(ii). To this amount of Rs. 599.26 lakhs, the assessee also added the value of stamp duty paid on this @ 6.25 per cent equivalent to Rs. 37.45 lakhs and in this manner, the total value of intangible assets/goodwill was determined at Rs. 633.72 lakhs. On this amount of goodwill of Rs. 633.72 lakhs, the assessee claimed depreciation @ 25 per cent since asst. yr. 1999-2000. In asst. yr. 1999-2000, the amount of depreciation claimed on goodwill was Rs. 79,59,332 and in that year, there is no disallowance because the assessment was completed under s. 143(1) and there is no scrutiny assessment in that year. In asst. yr. 2000-01, the amount of depreciation claim of the assessee on goodwill was Rs. 1,39,28,830 and in this year also, there is no disallowance although the assessment was completed by the AO under s. 143(3) as per the assessment order copy available on p. 256 of the paper book. In 2001-02, the amount of depreciation was claimed by the assessee on goodwill was Rs. 1,04,46,623 and in this year also, there is no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these three years should be allowed and in support of this contention, reliance was placed on the following judicial pronouncements:- (i) CIT vs. Radhasoami Satsang (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC); (ii) CIT vs. Rajeev Grinding Mills (2004) 192 CTR (Del) 84; (iii) Union of India and Ors. vs. Kaumudini Narayan Dalai and Anr. (2001) 168 CTR (SC) 3 : (2001) 249 ITR 219 (SC). 7. As against this, learned Departmental Representative of the Revenue supported the order of the authorities below. 8. We have considered the rival submissions and perused the material on record and gone through the orders of the authorities below and the judgments cited by the learned Authorised Representative of the assessee. We find that in the assessment order, the AO has disallowed the claim of depreciation of the assessee on the ground that no depreciation is allowable on goodwill but he has not examined this aspect as to whether the purchase consideration paid by the assessee also includes payment for acquisition of intangible assets also which are eligible for depreciation as per the provisions of s. 32(1)(ii). Learned CIT(A) has stated on p. 18 of his order that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Annex. 5 (copy attached)." 10. From the above details of intangible assets included in the goodwill, it is seen that the value of Rs. 636.72 lakhs assigned by the assessee to goodwill including stamp duty thereon of Rs. 37.45 lakhs is at least partly attributable towards trade mark and other intangible assets acquired by the assessee and only a portion of this can be assigned to goodwill and not the entire amount thereof. This aspect has been totally lost sight of by the authorities below. Learned CIT(A) has stated on p. 18 of his order that the assessee has been allowed to use trade mark for a period of five years but he says that no value has been assigned to it but we are not in agreement with him on this aspect that no value has been assigned to it because the same has been transferred as a part and parcel of agreement dt. 20th May, 1998 at a total value of Rs. 4,250 lakhs. Apart from trade mark, other intangible assets are also stated to have been transferred to the assessee such as contracts and licenses as per details available on p. 3 of the paper book. As per the provisions of s. 32(1)(ii), licenses and any other business or commercial rights of similar nature are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coca Cola Beverages (supra) also, the assessee claimed depreciation on goodwill by treating it as intangible assets. The assessee furnished details of intangible assets like marketing and trading reputation, trading style and name, marketing and distribution territorial know-how and information of territory and the AO allowed the claim of the assessee regarding depreciation. CIT invoked his powers of revision under s. 263 and held that no depreciation is allowable on goodwill. Under these facts, it was held by the Tribunal in that case that even if an asset is described as goodwill but it fits in the description under s. 32(1)(ii), depreciation is to be granted. It is also held that true basis for depreciation allowance is the character of assets and not its description. All these judgments cited by the learned Authorised Representative of the assessee support the view taken by us that the value to be assigned to all those intangible assets which are acquired by the assessee in the present case along with various tangible assets has to be considered for allowing depreciation and only that portion of goodwill which is not for acquiring eligible intangible assets, depreciation is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per our above para, we have already directed the AO to allow the claim of the assessee for depreciation on intangible assets as per the provisions of s. 32(1)(ii) after assigning the reasonable value to those intangible assets which were acquired by the assessee as per the agreement dt. 20th May, 1998 and only on the remaining value of goodwill, depreciation is not allowable as per our decision in above para. Hence, to the extent the assessment order was in accordance with law in earlier years, we have approved the same and have directed the AO to allow depreciation on intangible assets as per the provisions of s. 32(1)(ii) but on the remaining amount of goodwill, if any, depreciation is not allowable as per law and hence, on this aspect, it cannot be held that depreciation should be allowed on goodwill as per the principle of consistency although the same is not allowable as per law. As a result, all these three appeals of the assessee are allowed for statistical purposes in the terms indicated above. 13. Now, we take up the appeal of the Revenue for asst. yr. 2004-05 i.e., ITA No. 961/Del/2009. 14. The only effective ground raised by the Revenue is as under:- "On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and not sales. As per p. 10 of the assessment order, 7.32 per cent ALP is on the basis of operating profit/sale of the comparables and hence, for the assessee also, the profit percentage has to be worked out on the basis of operating profit/sale which comes to 6.97 per cent and that is within plus minus 5 per cent range of ALP. We, therefore, find no reason to interfere in the order of learned CIT(A) on this issue and hence, the order of learned CIT(A) on this aspect is confirmed. The appeal of the Revenue is rejected. 17. In the result, the appeal of the Revenue is dismissed. 18. Now, we take up the appeal of the assessee arising out of the order passed by the AO under s. 154 i.e., ITA No. 3742/Del/2008. 19. The grounds raised by the assessee in this appeal are as under:- "1. That the learned CIT(A) has erred in law and facts in upholding the rectification order passed by the AO for reduction of carry forward of losses to asst. yr. 2004-05 by Rs. 78,34,967 on ground that appeal filed by the assessee against the disallowance made by AO for asst. yr. 2002-03 is disallowed by CIT(A). That while upholding the above reduction in losses, the learned CIT(A) has ign ..... X X X X Extracts X X X X X X X X Extracts X X X X
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